State laws govern commercial and personal loan transactions. In Texas, the Office of the Consumer Credit Commissioner enforces the state's lending laws protecting consumers from deceptive lending practices. The unique homestead laws in Texas prohibit personal loan lenders from taking exempt homestead property as collateral. Lenders cannot collect certain types of personal and real property from borrowers who default on their personal loans.
Homestead Protection Statutes
The Texas homestead real property protections allow lenders to accept real property as collateral from borrowers if they secured loans to improve property, to initially purchase the home, for nonpayment of property or federal income taxes or nonpayment of debt secured to improve the property. Other lenders cannot require borrowers to pledge their real property as collateral for their loans. Debt collectors cannot take homestead real property, defined as one acre of land and a residential house in urban areas or up to 200 acres of rural land and a house in agricultural areas.
Homestead Real Property
The first Texas homestead protection laws were passed in 1839 by the Texas Legislature in response to the frequency in which Texas families lost their farms and homes during the Panic of 1837. Due to the dismal state of the economy at that time, the legislative assembly adopted homestead laws protecting families from foreclosure of their homes and agricultural property. Today, the Texas Constitution prohibits lenders from foreclosing on homestead property for specific types of debt. Since most personal and real property is exempt under the homestead protection statutes in Texas, creditors are generally unable to collect their collateral and unable to enforce their collection judgments when borrowers default on their loans.
Homestead Personal Property
Texas law also prohibits lenders and judgment creditors from taking certain personal property under the homestead protection laws. The Texas personal property homestead laws exempt most personal property from debt collections. Exempt personal property is limited to $60,000 for married debtors and $30,000 for single debtors. In addition to protecting all personal property up to $30,000 or $60,000, Texas law exempts specific types of personal property above the maximum limits. The Texas personal homestead exemptions include home furnishings, food, one vehicle for each family member able to drive, domestic pets, clothing and jewelry limited to one quarter of value, tools and equipment. Furthermore, family heirlooms, farm animals and feed, sports equipment, boats and cars used for business, books and children's toys, two handguns and life insurance policies are exempt from collections.
Considerations
Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.
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